California Punitives by Horvitz & Levy

  • Brewer v. Premier Golf Properties: California Court of Appeal Reverses Punitive Damages Award in Wage & Hour Case

    When it rains, it pours. While the blogosphere was already buzzing about today’s oral argument in Williams III (see below), the California Court of Appeal (Fourth District, Division One) issued a significant punitive damages decision of its own, dealing with the availability of punitive damages for alleged violations of the California statutes and regulations governing meal and rest breaks, minimum wages, and pay stubs. My colleague Felix Shafir provides this summary:

    In Brewer v. Premier Golf Properties, a former waitress sued her employer for, among other things, denying her meal and rest breaks mandated by law, failing to pay her wages for the hours she worked, and not providing her with accurate itemized wage statements. A jury found in her favor on these allegations and awarded the plaintiff $195,000 in punitive damages (among other relief). The Court of Appeal reversed the punitive damages award based on two rationales. First, the court held that the “new right-exclusive remedy” rule (whose effect on punitive damages awards we blogged about several months ago – – here here and here) precluded an award of punitive damages. As the court explained, under that rule, “‘[w]here a statute creates new rights and obligations not previously existing in the common law, the express statutory remedy is deemed to be the exclusive remedy for statutory violations, unless it is deemed inadequate.’” The court determined that the Labor Code statutes regulating pay stubs and minimum wages, as well as the statute and regulations governing meal and rest breaks, created new rights that did not previously exist in the common law. The court then held that those statutes provided the express and exclusive remedy for violations of meal/rest break, minimum wage, and pay stub laws.

    The court also held punitive damages would be unavailable in the case even if the Labor Code statutory scheme did not provide the exclusive remedy. The court explained that punitive damages “are ordinarily recoverable only in ‘an action for the breach of an obligation not arising from contract.’” Applying this rule, the court decided that “the Labor Code provisions governing meal and rest breaks, minimum wages, and accurate pay stubs constitute statutory obligations imposed only when the parties have entered into an employment contract and are obligations arising from the employment contract,” and thus held that punitive damages could not be recovered for violations of these provisions.

    UPDATE: The Complex Litigator weighs in on Brewer. And Wage Law too.

  • Lu v. Qi: California Court of Appeal Grants Rehearing and Affirms a Punitive Damages Award It Had Previously Reversed

    Here’s something you don’t see every day. Or even every year. It’s not often that the California Court of Appeal grants a petition for rehearing and completely changes directions from its original opinion. But that’s exactly what happened in this case. Last month, the Second Appellate District, Division Five, issued an unpublished opinion reversing a $180,000 punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s net worth. (See our prior post discussing that decision.)

    Yesterday, the court issued a new opinion affirming the punitive damages award in its entirety. Here’s what happened: the defendant had filed separate appeals, both from the judgment and from a subsequent order denying the defendant’s motion to vacate the judgment. In the original opinion, the Court of Appeal concluded that the motion to vacate the judgment was untimely, and therefore the defendant was entitled to no relief on its appeal from the denial of that motion. But the court nevertheless granted relief on the defendant’s appeal from the judgment itself. The Court of Appeal never noticed, however, that the appeal from the judgment was untimely. The plaintiff raised that issue on rehearing and the court, realizing its mistake, granted rehearing and issued a new opinion. Thus, the court ended up affirming an $180,000 punitive damages award that would have been reversed if the defendant had not blown (a) the deadline for appealing from the judgment and (b) the deadline for filing a post-judgment motion to vacate.

  • Monroe v. Singh: Unpublished Opinion Disallows Punitive Damages In Auto Accident Case

    The California Court of Appeal, Third Appellate District, issued this unpublished opinion yesterday, affirming a trial court order that granted summary adjudication in favor of the defendant on the plaintiff’s punitive damages claim.

    The case involved a low speed auto accident. The defendant collided with one car at about 15 to 20 mph and then kept driving, hitting a second car a few seconds later. The driver and passenger of the second car sued and sought punitive damages, but the trial court granted the defendant’s motion for summary adjudication on the punitives claim, finding there was no evidence that the defendant engaged in the sort of “despicable” conduct that could support punitive damages under California law.

    The plaintiffs appealed, arguing as a matter of law that anyone involved in a hit-and-run accident is guilty of the sort of despicable conduct. The Court of Appeal disagreed. It emphasized that punitive damages are reserved for only the most egregious misconduct, and are rarely allowed in unintentional tort cases. The court concluded that a “garden-variety hit-and-run incident,” where the defendant was not speeding and was not driving under the influence, could not possibly support a finding of despicable conduct.

    Full disclosure: Horvitz & Levy represented the defendant on appeal.

  • Shapiro v. Clark: Court of Appeal Reverses Order Requiring Defendant to Bond Punitive Damages Portion of Default Judgment

    This published opinion by the California Court of Appeal (Sixth District) involves a fairly obscure corner of punitive damages law, namely, whether a trial court can require a defendant who is seeking relief from default to post a bond to cover the amount of the plaintiff’s punitive damages claim. The short answer is, “no.”

    The trial court entered a default judgment against Pamela Clark and two co-defendants, holding them jointly and severally liable for $300,000 in compensatory damages and $1.5 million in punitive damages. Clark alone sought relief from default, providing a variety of reasons why she should be excused from her failure to answer the complaint, including the fact that her adult son died unexpectedly during the time period when her answer was due. The trial court entered an order denying Clark’s request for relief from default unless she agreed to post a bond of $1.8 million with the superior court for the duration of the litigation.

    The Court of Appeal acknowledged that trial courts have discretion to require a party to post a bond in order to obtain relief from a default judgment. The bonding requirement protects the plaintiff in the event of an eventual recovery. But the court found that the bond required by the trial court in this case was excessive. The court noted that the bond grossly exceeded the amount of compensatory damages at issue, and the bond could not be justified based on the plaintiff’s prospect of obtaining punitive damages:

    A punitive damages award is “essentially a windfall for plaintiffs that the law permits for public policy reasons.” . . . We question whether a bond protecting only a plaintiff’s interest in a “windfall” can ever constitute a reasonable condition . . . We have found no case in which such a condition was imposed, let alone upheld on appeal. Nor do we detect any circumstance in this case that might justify such a condition. . . . The essential function of the law is to strike a balance between competing interests and policies. As against the policy strongly favoring adjudication on the merits, and appellant’s interest in securing such an adjudication, respondents’ interest in securing the payment of a windfall, and the policy of punishing wrongdoers through civil actions in tort, lack sufficient weight to sustain the order under review. We conclude that insofar as the amount of the bond exceeded an amount reasonably anticipated to make the plaintiff whole, its imposition as a condition of relief was an abuse of discretion.

    Thanks to Ben Shatz at Manatt, Phelps & Philips for alerting me to this decision.

  • Miller v. Mercury: Unpublished Opinion Affirms Order Granting Motion to Strike Punitive Damages Claim

    The California Court of Appeal (Second Appellate District, Division Seven) issued an unpublished opinion yesterday that highlights an underutilized defense strategy. The defendant in this case successfully moved to strike a punitive damages claim from the plaintiffs’ complaint on the ground that the plaintiffs failed to plead that claim with specificity. The Court of Appeal affirmed. Here’s the relevant portion of the Court of Appeal’s opinion:

    It is settled law that in order to state a claim for punitive damages the pleadings require specificity and not generalities. This means pleading the “facts” with certainty and specificity. Miller’s SAC is simply wanting in this regard. In essence, it merely alleges that Mercury disagreed that there was a potential for coverage under the policy and simply refused to provide a defense as requested. As the cases point out, even a mistaken belief as to lack of coverage and denial thereof does not warrant imposition of punitive damages. We further note that the plaintiff’s burden of proof with respect to punitive damages, as well as the requirement of specificity in pleading, is that of “clear and convincing evidence” which is an elevated standard over the usual civil burden of proof by a preponderance of the evidence. Additionally, it has been historically held in appellate decisions that punitive damages are generally disfavored in the law. This decisional attitude is an additional reason for requiring specificity in pleading facts to warrant punitive damages. The Millers have simply failed in their effort to convince this court that punitive damages should be allowed under the facts and status of the pleadings in this case.

    UPDATE (7/16/07): Spencer Kook at Cal Insurance Regulation has a post about this case, in which he links to our post. In response to our observation that this defense strategy is underutilized, Spencer notes that his firm (Barger & Wolen) employs this strategy and he has seen it used regularly by others as well.

  • Lu v. Qi: Another California Punitive Damages Award Reversed Because the Plaintiff Failed to Present Evidence of the Defendant’s Net Worth

    The California Court of Appeal (Second Appellate District, Division Five), issued an unpublished opinion yesterday reversing a punitive damages award because the plaintiff failed to present evidence of the defendant’s net worth. The court reversed the award with directions to enter judgment for the defendant on the punitive damages claim; the plaintiff doesn’t get a new trial, because a party who fails to present evidence on an element of its claim doesn’t get a second bite at the apple. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 914.)

    As we have observed before, it is surprising how often plaintiffs’ attorneys overlook this rule, which has been part of California law since 1991. This is the fourth opinion already this year reversing a punitive damages award on this basis.

  • California Supreme Court Denies Plaintiffs’ Petition for Review in Holdgrafer v. Unocal

    The California Supreme Court has denied the plaintiffs’ petition for review in Holdgrafer v. Unocal. (This is the case in which the Court of Appeal reversed a $5 million punitive damages award and ordered a retrial on punitive damages. See our prior posts on Holdgrafer here.)

    Justices Werdegar and Corrigan were absent and did not participate. See the court’s online docket.

    Holdgrafer was one of three published California opinions issued this year interpreting the U.S. Supreme Court’s 2007 opinion in Philip Morris v. Williams (Williams II). The California Supreme Court denied the plaintiffs’ petitions for review in the first two (Holdgrafer and Bullock v. Philip Morris) but has not yet ruled on the defendant’s petition for review in the third case (Buell-Wilson v. Ford Motor Co.).

  • Ford Files Reply in Support of Petition for Review in Buell-Wilson

    Ford has filed a reply in support of its petition for review to the California Supreme Court in Buell-Wilson v. Ford. That’s the case in which the California Court of Appeal reaffirmed a $55 million punitive damages award even after the US Supreme Court vacated the Court of Appeal’s prior opinion affirming the same award and remanding the case for reconsideration in light of Philip Morris v. Williams (Williams II).

    You can view our prior posts on Buell-Wilson here. You can also read Ford’s petition for review, Buell-Wilson’s answer to the petition, and our amicus letter on behalf of the American Chemistry Council.

    The Supreme Court’s ruling on the petition is due by June 27. The court holds its case conferences on Wednesdays, so we can expect the court to issue a ruling on June 18th or June 25th. You can track the status of the case on the court’s online docket.

  • California Supreme Court Extends Time to Grant Review in Holdgrafer v. Unocal

    The California Supreme Court has given itself an additional 30 days to decide whether to grant review in Holdgrafer v. Unocal. (See the order posted on the court’s online docket.)

    This is the case in which the California Court of Appeal reversed a $5 million punitive damages award and ordered a retrial on punitive damages because the plaintiffs improperly presented the jury with evidence of Unocal’s dissimilar conduct towards nonparties, in violation of State Farm v. Campbell. You can view our prior posts on Holdgrafer (in which we represent Unocal) here.

  • Price v. Gingrich: Unpublished CA Court of Appeal Opinion Reinstates $500,000 Punitive Damages Award

    In this unpublished opinion, the California Court of Appeal (Fourth District, Division Two) reinstated a $500,000 punitive damages award that had been declared void by the trial court.

    This is a fraud case in which the defendant was accused of running a Ponzi scheme and defrauding the plaintiff of $500,000. The jury awarded $500,000 in compensatory damages and $500,000 in punitive damages. Over a year later, the defendant moved to vacate the judgment, arguing that the plaintiff had failed to meet his burden of presenting evidence of the defendant’s financial condition. The trial court agreed and vacated the award on the ground that the trial court did not have jurisdiction to award punitive damages in the absence of evidence of the defendant’s financial condition.

    The Court of Appeal reversed. While acknowledging that a party can move to vacate a void judgment at any time, the court concluded that this particular judgment was not void. A plaintiff’s failure to present evidence of the defendant’s financial condition is not a jurisdictional issue – – it is a collateral attack on the judgment that must be raised either by a timely posttrial motion or on a direct appeal. Accordingly, the court erred in granting the motion to vacate. The Court of Appeal went on to say that, aside from the procedural problem, the trial court’s ruling was substantively erroneous because the plaintiff did in fact present sufficient evidence of the defendant’s financial condition to demonstrate that the award was not excessive.

    The Court of Appeal’s procedural analysis seems correct, but the analysis of the substantive issue is a little troubling. The court focuses on evidence that the defendant had sufficient unencumbered assets to pay a $500,000 punitive damages award. The court’s analysis suggests that a $500,000 is not excessive so long as the defendant has $500,000 in liquid assets. But California courts have traditionally applied a different standard. The California Supreme Court has said that courts should consider whether the award is disproportionate to the defendant’s ability to pay, not merely whether the award exceeds the defendant’s ability to pay. (See Adams v. Murakami (1991) 54 Cal.3d 105, 112.) Applying that standard, the lower courts have adopted a 10 percent “rule of thumb” – – an award is disproportionate to the defendant’s ability to pay if the award exceeds 10 percent of the defendant’s net worth. (See Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1596 [“Punitive damages constitute a windfall. [Citation.] Such awards generally are not allowed to exceed 10 percent of the net worth of the defendant”].)

    Under the 10 percent rule, the award in this case appears to be excessive, since the opinion indicates that the defendant had a net worth of $1.8 million. That wouldn’t make any difference to the ultimate outcome of this appeal because the defendant failed to raise the issue in a timely fashion. Nevertheless, it is a little troubling to see the Court of Appeal departing from traditional principles of California punitive damages law, even if the entire discussion is dictum in an unpublished opinion.